Ljm1 Internal Control Essay

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1. What important internal controls were ignored when LJM1 was created?
Internal controls are those company policies that are established to safeguard company assets, to ensure that accounting records are prepared in a reliable manner and to guarantee the achievement of organizational objectives (Wilson & Key, 2011). LJM1 ignored several important internal controls by violating Enron’s code of conduct.
First, the company’s managers were forbidden from assuming any managerial or financial role of SPEs except with approval of the chairman and the CEO of Enron that such engagements would not jeopardize the interests of the company. However, the Board and the CEO appointed Fastow (the CFO) to oversee operations at LJM1 even though this action violated internal controls making fraud inevitable. The Board allowed the prospective conflict of interest by determine that benefits of the SPE transactions justified the risk and adopted other internal controls in 1999.
One of the new internal controls adopted was that the board would review and approve any CFO compensation arrangements arising from the SPEs. However, the Board failed to obtain comprehensive information on how Fastow gained from LJM1. This allowed Fastow to continually accrue personal …show more content…

While neither party completely ignored this duty, neither of them did a comprehensive review of the Enron-SPE transactions to the level required by the Board. For instance, only few transaction were reviewed and for those reviewed, the CAO and CRO only checked for minor procedures such as whether the appropriate personnel signed. The CEO and COO were also required to review and approve any changes to transaction terms originally approved by the Board. However, while there were changes in transactions between LJM1, Rhythm and Enron, there is no evidence that the CEO and COO approved these changes (Wilson & Key,

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